April 05, 2009

Exercises in style

Three ways to tell the same story.

Things don't sit in a stable equilibrium, but instead one critical state that then collapses into another. But collapse may be too negative a term for something that's only change, and there are few things that are undiluted positives or negatives for all players in the long run. There's always the ju jitsu possibility of turning weakness into strength.

This idea is neatly covered by Dmitry Orlov in a February '09 talk he gave at the Long Now Foundation, called "Social Collapse Best Practices" [summary here, MP3 here], in which he describes how the weaknesses of the Soviet system - essentially many forms of inefficiency - actually helped Russians survive the various post-Soviet collapses. An entertaining speaker, with lots of jokes and some good observations amid predictions you probably hope won't come true, building on his earlier The 5 Stages of Collapse:
Stage 1: Financial collapse
Stage 2: Commercial collapse
Stage 3: Political collapse
Stage 4: Social collapse
Stage 5: Cultural collapse

A series of three articles in Asia Times from March this year. The problem the article sets up is essentially the one covered by the ugly name of Chimerica [Niall Ferguson- pdf]: how does China escape from its co-dependent relationship with America, not so much inre. exports - which it has little direct control over, as in its huge capital reserves which leave it overexposed to declines in the dollar / rises in US interest rates, both of which seem inevitable with the trillions of dollars of new US govt. debt that will come onto the market this year. Quotes from all three articles below, followed by the links:

Much discussion and debate is currently underway as to whether the US will find sufficient global demand for the more than $2 trillion in new Treasuries coming online this fiscal year alone. But the fundamental risks for the dollar aren't only arising out of that fear over whether demand for Treasuries will be sustained.

Serious risks for the dollar also arise if global demand for Treasuries is sustained. Why? Because that would only thrust the present Treasuries bubble to even more gigantic proportions, further warping the structure of the already severely deformed present global financial order, magnifying the dangerous distortions that already exist and increasing the likelihood of a massive second wave of damage and destruction in this present crisis, and an eventual burst in the Treasuries bubble.
Investors will begin to stampede out of financial assets such as Treasuries and into hard assets like precious metals and certain commodities whose price has been severely beaten down. These will offer comparatively much safer stores of wealth, ones with a real profit potential. China, via its resource buys, is already blazing the trail, going energetically into hard assets, rather than sustaining its 2008 rate of purchases of Treasuries and other financial assets.
There is mounting evidence that China's central bank is undertaking the process of divesting itself of longer-dated US Treasuries in favor of shorter-dated ones.

There is also mounting evidence that China's increasingly energetic new campaign of capitalizing on the global crisis by making resource buys across the globe may be (1) helping itscentral bank to decrease exposure to the dollar, while (2) simultaneously positioning China to make much greater profit on its investment of its reserves into hard assets whose prices are now greatly beaten down, while (3) also affording it greatly increased control of strategic resources and the geopolitical clout that goes with it. This is turning out to be a win-win-win situation for China as it capitalizes upon the important opportunities afforded it by the present global crisis.

1. Before the stampede
2. The not-so-safe-haven
3. China inolculates intself against dollar collapse


What’s going on now is nature’s way of telling you that America’s standard of living has to be reduced by something between 20 and 50 percent. You can have it in the form of a compressive deflationary depression, including widespread bankruptcies… or you can have by way of inflation, in which money loses its value. But there’s one basic qualification to this: the way down is not symmetrical with the way up. That is, it’s really not just a matter of ratcheting down to a standard of living half of what it was, say, in 2006, because in the event all the various complex systems that support everyday life enter failure mode before our society re-sets at a theoretically lower level of equilibrium.

Related posts:
Old systems break before new ones are in place
The utility of slack
A continuous network of critical states

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